What Is Organization Hierarchy? (With Definition and Types)

By Indeed Editorial Team

Updated September 8, 2022

Published September 29, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

In nearly every organization, there exists a hierarchy that defines work roles and authority. An organization's hierarchy can influence communication, productivity, and project success. By learning about organization hierarchies, you can gain insights into your organization's structure and develop ideas for structural changes whenever required. In this article, we define organization hierarchy, discuss common members of an organizational hierarchy, explain the importance of hierarchies, and describe common types of hierarchical structures.

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What is organization hierarchy?

Organization hierarchy is the order of members based on authority. It refers to the ranks from entry-level employees to senior managers or executives. Organization hierarchies typically consist of multiple levels, and members with more authority occupy higher positions. For example, a company's chief executive officer (CEO) is typically the highest member of an organization and its hierarchy. If you hold a leadership position in a company, review your organization's hierarchy to determine whether to reorder structures to suit the current communication and reporting system. Otherwise, learn what hierarchy type your organization uses to determine how you fit into the organization.

Related: What Does Seniority Mean at Work? Structures and Advantages

Examples of organizational hierarchies members

Aside from employees, here are other important members of organizational hierarchies:

  • Chief executive officer (CEO): is the top executive in an organization who guides and directs the organization to ensure growth, profitability, and development

  • Chief operating officer (COO): is typically the second-highest executive who coordinates activities to ensure the organization operates effectively and stays productive

  • Chief financial officer (CFO): coordinates all financial activities within an organization and may recommend financial opportunities, such as investments

  • Directors: oversee departments and ensure department managers, such as finance, sales, and marketing managers, implement the best policies to ensure productivity

  • Department managers: oversee the daily activities of an organization and train employees who work in the department

  • Department supervisors: assist department managers in coordinating daily activities by overseeing a group of employees within the department

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Why are organization hierarchies important?

Here are the benefits of organization hierarchies to organization leaders and members:

Establishes leadership structure for growth and project success

A hierarchy provides leadership at each employment level. For organization leaders, it helps to focus on the organization's goals and mission. Similarly, it ensures project accountability among organization members. For example, suppose you work at a telecommunications company. Having a hierarchy would help the company's leaders expand their operations while managers or supervisors handle daily operations. This way, the company's leaders can determine who is responsible for project successes or changes.

Provides career path for organization members

A hierarchy can also outline career paths to follow within an organization. Having a structure that shows executive, managerial, and supervisory positions can help you evaluate your career goals and what steps to take to reach your desired hierarchy level. For example, a nonprofit's hierarchy can inform entry-level employees they need to gain supervisory or managerial experience before becoming executives. Executives and managers also use it to motivate employees who show managerial or supervisory potential to perform at higher productivity levels.

Helps communications

A hierarchy helps to establish efficient communication within a company, especially as an organization's size increases. For example, having a hierarchy can help in disseminating information from executives to entry-level employees. This way, executives can convey messages, policies, or ideas without contacting all employees. Similarly, a hierarchy ensures entry-level employees can express their concerns or ideas without meeting all managers or executives, if they report to a leader.

Related: Developing Proficient Organization Skills

Helps employees understand the organization's structure

A well-defined hierarchy also helps employees understand the organization better. For example, knowing the hierarchy can help them identify who to contact to schedule meetings, resolve conflicts, find out more about promotions, or discuss business ideas. It can also help employees know who to receive guidance from in an organization.

Types of hierarchy in an organization

Review the common types of organization hierarchies to determine the best option for an organization:

Traditional hierarchy

A traditional organization hierarchy has an individual at the top of the corporate structure. In companies, this hierarchy starts with the CEO, followed by all company executives, directors, managers, supervisors, and employees. With this hierarchy, communication is typically between the employment level above and below your position. For example, suppose you're a maintenance supervisor in a company that operates on a traditional hierarchy. You can expect to communicate with the maintenance manager, who is one step above your hierarchy level, and maintenance technicians, who are a step below.

This hierarchy can help you understand your purpose within an organization and contribute to its success. It also makes visualizing potential career paths easier.

Functional hierarchy

A functional hierarchy focuses on work roles within an organization grouped by employee functions. For example, a business may have employees working in the sales department as others handle the organization's human resources needs. Each department has its directors and managers who report to the same executives. For example, a company's sales manager and human resources manager may report to the vice president.

Functional hierarchies can have a varying number of management and leadership positions, depending on the company's size. For example, a startup may have two employees in the human resources department. As the company grows, it can introduce new departments with unique managers.

Read more: 10 Manager Responsibilities in a Functional Organization

Divisional hierarchy

A divisional hierarchy is a structure that involves grouping an organization based on geographic location, products, or target markets. For example, a company may have a division for products tailored to children and one for teenagers. With this hierarchy, each division has a reporting structure and unique departments and resources. For example, the division for children's products may have its IT, marketing, and sales departments separate from the same departments of the division for teenage products.

Large companies typically adopt division hierarchies to ensure the development of promising divisions. This hierarchy type can also help to connect businesses with customers in different countries, provinces, and territories.

Horizontal hierarchy

A horizontal hierarchy, or a flat hierarchy, has few middle management levels between employees and executives. It is the system executives typically use to start an organization. With this hierarchy, managers and supervisors have more responsibilities as more employees report to them. For example, suppose a startup has a CEO, commercial manager, director of research, and two associates in the commercial and research departments. Because of its size, the CEO may hold regular meetings with the associates and monitor their progress.

Horizontal hierarchies help you make more impact in a company. It also helps you express your ideas with others, develop your skills, and gain more experience by taking on additional responsibilities whenever required.

Team-based hierarchy

A team-based hierarchy is common in organizations that group employees with varying specialties and backgrounds. Instead of having sections, such as marketing, sales, or human resources departments, the organization operates in teams. For example, a team may consist of two sales representatives, a marketer, and two human resources representatives. The organization's leaders also determine the authority of team members.

A team-based hierarchy can improve communication between employees, which would otherwise occur across departments. It can also be useful for thinking creatively about new ideas or handling specialized projects. For example, a company can use a team-based hierarchy when merging with another company or working on an urgent company project.

Matrix hierarchy

A matrix hierarchy is common in organizations where employees from departments work on a project. With matrix hierarchies, you may report to more than one supervisor or leader. For example, a company's maintenance manager may report to the directors of operations and engineering. Matrix hierarchies enable departments to communicate easily on projects. As employees answer to multiple managers, issues also tend to be resolved more quickly. Leaders typically need to define authority levels clearly to ensure matrix hierarchies of work roles lead to improved productivity.

Read more: Understanding a Matrix Organizational Structure

Network hierarchy

A network hierarchy is a structure where an organization has internal and external employees. An external employee works for an organization but isn't formally on its payroll, unlike an internal employee. Company employees may work in different locations, and leaders may outsource roles to external employees, such as freelancers and consultants. For example, a company may outsource its IT roles while handling marketing, finance, and sales activities internally. Organization leaders typically develop reporting systems for network hierarchies.

For example, suppose an organization outsources some marketing roles to a freelancer. The freelancers may report to internal employees who make up the remaining part of the marketing department. Network hierarchies also encourage employees to express their ideas to leaders and increase productivity, as more employees are available to complete projects.

Related: Definition of an Organization Type (With a List of Benefits)

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